IMF chief says world economy at 'critical juncture'
Source: AFP | Published: Tuesday May 18 5:44:13 PM
TOKYO: The world economy is at a 'critical juncture' with a US slowdown possible at any time, IMF managing director Michel Camdessus warned today.
The US economy can 'slow down at any moment', the International Monetary Fund chief told a news conference in Tokyo, 'but I cannot say that the European or the Japanese economy can take off at any moment'.
A strategy to deal with a US 'soft landing' should be drawn up at a Group of Eight summit in Cologne on June 20, he said. The G8 groups Britain, Canada, France, Germany, Italy, Japan, Russia and the United States.
US consumer prices shot up 0.7 per cent in April, according to figures released on Friday which rattled stock and bond markets.
The 'remarkable expansion in America has contributed to limit the impact of the o-called Asian crisis which became a worldwide crisis last year', Camdessus told the Japan National Press Club.
'Now we arrive at the moment where there is a question about the sustainability of the US growth.'
The IMF chief pointed to the US deficit in its current acccount - measuring trade in goods, services and other monetary transfers.
The United States in March posted a record $US233.4-billion ($A352.83 billion) current account deficit for 1998, a 50 per cent jump from its 1997 shortfall of $US155.2 billion ($A234.62 billion).
The external imbalance was at a 'worrying level indeed' said Camdessus, and could lead to questions about the dollar. A 'lack of confidence in the currency can be accompanied by developments in other markets'.
The United States, meanwhile, was facing 'protectionist pressures which can be by themselves a dangerous factor'.
The IMF managing director said it was now 'time for the world leaders to put forward a kind of strategy allowing for a soft landing of the US economy' at the G8 summit.
That strategy should include at least two key ingredients.
'The European economy should get out of a kind of lethargy' it was suffering from and Japan must attain 'a robust recovery soon enough before the US goes into a declining path.'
A weak yen was good for the Japanese economy in the short term, Camdessus added.
'In the short term a relatively weak yen is a good thing for the Japanese economy,' he said.
'I would not wish to see the yen appreciate too rapidly because that could derail the recovery of the Japanese economy.
'At this moment the yen is more or less in the range where it should be,' he said.
Japan is in the grip of its worst post-war recession and a surge in the value of the yen late last year badly damaged exporting firms.
Camdessus did not rule out Japan taking 'measures which could be needed during the second part of this year to give another boost to the economy and at least avoid dilution of the present stimulus as the year ends'.
He said the Bank of Japan should persist with a 'well-designed monetary policy and injecting the proper liquidity into the economy'.
Japanese policy-makers were capable of handling the task, the IMF chief said. 'I am sure they will be very pragmatic and do whatever they can to avoid being too late.'
The Bank of Japan today said it had left interest rates unchanged after a policy board meeting, leaving Japan's official discount rate at 0.5 per cent.
At 4:00pm (1700 AEST) the dollar was trading at 122.95-98 yen in Tokyo from 123.12-15 yen here late yesterday.
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